BOJ’s Ueda Keeps Door Open for Rate Hike as Decision Nears
Bank of Japan Governor Kazuo Ueda indicated that the bank will continue normalizing policy if confidence in achieving its economic outlook strengthens as he kept the door open for a near-term interest-rate hike.
“There’s no change in our stance that we will adjust the degree of monetary easing if our confidence in hitting the outlook increases,” Ueda told reporters Thursday in Washington after a Group of 20 meeting. The BOJ has since last year been dialing back its monetary stimulus via interest-rate hikes and adjusting its balance-sheet policy.
In his last scheduled speech before the next policy meeting, Ueda suggested that he wants to wait until the last minute before making any decision. He said he plans to continue gathering information during the ongoing international conferences and to assess incoming data for the Oct. 29-30 gathering.
“Ueda isn’t ruling out a October hike yet,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “But he isn’t actively hinting at the chance of a move this month either even at this point. That suggests it’s more likely to be in December.”
Financial markets reflect a narrow chance of a rate hike at the end of this month. His reiteration of the BOJ’s existing stance suggests the bank retains optionality for a move in the near term, even amid domestic political turmoil and escalating US-China trade tensions.
Still, the lack of clear signals from Ueda suggests there’s no strong intention to reverse market expectations. Last year the BOJ faced strong criticism for its communication ahead of its July rate hike, with many blaming the market turmoil that followed on the BOJ’s lack of signaling.
Speaking in Tokyo on Friday, Ueda’s right-hand man Deputy Governor Shinichi Uchida also offered no new policy signal. He reiterated the BOJ’s stance on raising rates and that it has no preconceptions over assessing if its economic view is materializing.
Ueda’s comments were the first since Sanae Takaichi’s unexpected election victory as ruling Liberal Democratic Party leader on Oct. 4. The ascension of Takaichi, known for her opposition to BOJ tightening, rattled markets and sharply lowered expectations for a near-term rate hike.
Traders now see about a 19% probability of a BOJ move this month, according to overnight swap data — down from 68% just weeks ago, after two board members had called for tightening at a September meeting and a dovish member made hawkish comments.
That probability compares with overnight swaps indicating around a 60% chance of a rate hike before the BOJ did just that in July 2024.
While Thursday was the last scheduled opportunity for Ueda to speak, speeches are expected from board member Hajime Takata on Monday and Deputy Governor Ryozo Himino on Tuesday. Ueda could also have a meeting with the new prime minister next week once the leader is officially elected.
Expectations of a delay in the BOJ’s next rate hike weakened the yen at the fastest pace among major currencies this month, and on Oct. 10 it touched an 8-month low of 153.27 to the dollar. By refraining from clearly dovish comments, Ueda avoided the risk of fueling inflationary pressures by lowering the yen further.
The yen strengthened past 150 to the dollar on Friday as credit risk concerns deepened after two regional US banks reported being victims of fraud.
US Treasury Secretary Scott Bessent said earlier this week that he expects the yen will settle at an appropriate level if the BOJ conducts the right monetary policy, in a fresh reminder that the US is monitoring any attempt by Japan to intentionally weaken the yen.
Political Factor
Political uncertainty has complicated the picture for the BOJ. The LDP’s long-time coalition partner Komeito quit the ruling alliance last week, clouding Takaichi’s chances of becoming Japan’s first female prime minister. She is now seeking backing from Osaka-based Japan Innovation Party, while some other opposition parties explore a united front against the LDP.
Ueda did not specifically comment on the impact of domestic political instability on policymaking, by sticking with the standard central bank line that they will decide policy based on inflation and the state of the economy.
Earlier this month, Ueda cited the global economy-especially the US economy- as top on the list of factors to watch. The governor pointed out Thursday that the impact of tariffs has been slow to appear and could emerge in the coming months, although the global economy has shown robustness so far.
“Many institutions and observers still factor them into their outlooks, or at least treat them as downside risks when assessing the global and US economies,” he said.
Source : Bloomberg.com
